Do the estimated 24.5 million people who play fantasy football violate gambling laws? It depends on the state, according to sports lawyer Marc Edelman. Wisconsin has not addressed the issue specifically, suggesting the state regards fantasy sports as contests of skill.

Sept. 19, 2012 – With the National Football League season underway, an estimated 24.5 million people are participating in online fantasy football leagues, many with a financial stake in the performance of their chosen players. So, are there gambling issues in playing fantasy sports?

“Since that time, there has never been anyone prosecuted for playing fantasy sports,” he said. “In fact, the only gambling suit ever brought against a fantasy sports participant took place in Florida against the commissioner of a league, and that suit was later dropped.”

Interestingly, Edelman is chief justice of the Court of Fantasy Football, a dispute resolution forum for fantasy football participants with disputes against one another or the league. Through SportsJudge.com, fantasy footballers can get “opinions” for a fee.

Though Edelman says criminal prosecution for mere participation in fantasy sports leagues is unlikely, state gambling laws vary in their approaches to fantasy sports regulation. For instance, Wisconsin law may prohibit persons from wagering on games of chance.

A Game of Skill or Chance?

In Wisconsin, a person can be guilty of a misdemeanor for making a “bet,” defined as a “bargain in which the parties agree that, dependent upon chance even though accompanied by some skill, one stands to win or lose something of value. ….”2 Contestants who compete for a prize based on their own skill, speed, strength, or endurance are not considered to be betting.3

In determining whether a contest is based on “skill,” Wisconsin courts have ruled that skill rather than “chance” must be the dominant factor controlling the award.4

Thus, betting money on a game of pool would not be considered a wager on chance, at least not according to one judge. “One who believes pool is a game of chance should play a few games with Minnesota Fats,” Wisconsin Appeals Court Judge Charles Dykman once wrote.5

But are fantasy sports participants engaged in contests of skill or chance? Or must that determination be made on a case-by-case basis? For example, the fantasy sports fanatic who takes great care in researching and selecting his players may be a “skilled” participant. But what about the guy who blindly drafts and manages his team, then ends up winning the league?

No Wisconsin statute, case, or advisory opinion seems to address the issue specifically, suggesting that Wisconsin is among the majority of states that regard fantasy sports as contests of skill, more so than chance, and thus not within the purview of gambling laws.

“If you strip away the black letter law, the large fantasy sports games have been out there for a long time,” Edelman said. “It seems unlikely that a state would come after individual participants knowing full well these games have been operating on the market for some time.”

Fantasy Football Structure

In fantasy football – and other fantasy sports such as baseball, basketball, hockey, soccer, golf, and even auto racing – participants generally form 12-person leagues, select players through a pre-season “draft,” and then compete against each other using a specified point system.

For instance, a participant may get four points for a touchdown pass, and one point per 25 yards passing. If the participant’s starting quarterback throws three touchdowns and passes for 300 yards, the participant gets 24 points for that position (12 for TDs, 12 for passing yards).

Many leagues require participants to field a starting lineup consisting of one quarterback, two running backs, three wide receivers, a tight end, a kicker, and defensive unit. Participants must carefully choose which players to start based on the potential to score points each week, a choice that may depend on numerous factors, including talent, injuries, weather, and the opponent. Indeed, publications such as Sports Illustrated have annual issues devoted to the statistics and inside information necessary to improve a participant’s “chances” of winning.

Each week, the participant will beat a head-to-head opponent by amassing more points. This continues week to week, until the “fantasy playoffs.” Teams with the best records will compete in the playoffs, usually corresponding with the last three weeks of the NFL’s regular season. The ultimate winner will collect glory, and in many cases, a financial reward.

Where participants once played fantasy sports “on paper,” manually calculating scores and statistics, online providers such as NFL.com, Yahoo.com, and CBSSports.com now serve as “league hosts,” allowing participants to set lineups, make trades, and add and drop players. The host also tracks player statistics in real-time, and calculates the participants’ weekly scores.

Host Sites

Some league hosts are pay-to-play sites, which require a participant to pay an upfront entry fee for the chance to win a cash prize. For instance, the Fantasy Football World Championships had an upfront entry fee of $1,740 this year for the chance to win a cash prize of $200,000.

In 2007, a federal district court dismissed an action alleging that pay-to-play Internet sites violate laws in states with qui tam statutes, known as Queen Anne statutes, which give persons a right of action to recover money lost through wagers or bets. The defendants argued, among other arguments, that paying entry fees to play fantasy sports is not a wager, bet, or stake.6

The court agreed, concluding that entry fees are not bets or wagers if paid without conditions, the prizes are certain and guaranteed, and the host site does not compete.7

The court’s analysis on that point largely followed the federal Unlawful Internet Gambling Enforcement Act (UIGEA) of 2006, which specifically exempts fantasy pay-to-play Internet sites from federal prohibitions on Internet gambling if certain conditions are met.8

“I think there are risks, if any, to the hosts of the games themselves, and I think the risk goes up if a site has an unusual structure to the game,” Edelman said. “It may not be enough for sites to follow federal law, because many states have gambling laws more strict than federal law.”

Many host sites allow participants to play for free, or for a minimal “hosting” fee that does not include a prize for the winning participant. League participants of these sites, often friends or family, play for fun or determine (on the side) whether cash is at stake.

When fantasy sports gained popularity in the 1990s, Florida’s Attorney General advised that fantasy sports participants who wager money for the chance to win a collective pot violate Florida’s gambling laws, regardless of whether the contest relies on skill.9

Florida law “prohibits the operation of and participation in a fantasy sports league whereby contestants pay an entry fee for the opportunity to select actual professional sports players to make up a fantasy team whose actual performance statistics result in cash payments from the contestants’ entry fees to the contestant with the best fantasy team,” the AG wrote.

However, the Florida AG also noted that fantasy sports participants may not violate Florida law if the contest is considered a game of skill and the entry fees don’t constitute the prize.10

The Arizona Department of Gaming has concluded that “Fantasy Sports Team games are illegal if the host of the event receives a fee for services provided or if all the pooled money doesn’t go back to the participants. If the host takes a percentage of the pooled money, the Fantasy Sports Team contest is illegal” under Arizona’s gambling laws.11

Host sites such as CBSSports.com limit liability from stricter state laws by prohibiting players from those states to play in leagues requiring entry fees. Those jurisdictions currently include Arizona, Iowa, Louisiana, Montana, Vermont, Washington, and Washington D.C.

As fantasy sports participation continues its rise in popularity, other legal issues may arise. In his article, Edelman highlights many of the legal risks to fantasy sports sites, participants, and ancillary sports businesses such as advisors, treasury sites, and insurers.

“[W]ith the rapid and unexpected emergence of fantasy sports, few have devoted time to understanding how U.S. law applies to fantasy sports businesses and their participants,” he writes in his article. “Thus, many have misconceptions about the law of fantasy sports.”